Correlation Between Rheinmetall and SPECTRAL MEDICAL

Can any of the company-specific risk be diversified away by investing in both Rheinmetall and SPECTRAL MEDICAL at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Rheinmetall and SPECTRAL MEDICAL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rheinmetall AG and SPECTRAL MEDICAL, you can compare the effects of market volatilities on Rheinmetall and SPECTRAL MEDICAL and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Rheinmetall with a short position of SPECTRAL MEDICAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and SPECTRAL MEDICAL.

Diversification Opportunities for Rheinmetall and SPECTRAL MEDICAL

-0.65

Correlation Coefficient

Rheinmetall  SPECTRAL MEDICAL

Excellent diversification

The 3 months correlation between Rheinmetall and SPECTRAL is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and SPECTRAL MEDICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPECTRAL MEDICAL and Rheinmetall is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Rheinmetall AG are associated (or correlated) with SPECTRAL MEDICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPECTRAL MEDICAL has no effect on the direction of Rheinmetall i.e., Rheinmetall and SPECTRAL MEDICAL go up and down completely randomly.

Pair Corralation between Rheinmetall and SPECTRAL MEDICAL

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 0.38 times more return on investment than SPECTRAL MEDICAL. However, Rheinmetall AG is 2.63 times less risky than SPECTRAL MEDICAL. It trades about 0.12 of its potential returns per unit of risk. SPECTRAL MEDICAL is currently generating about 0.04 per unit of risk. If you would invest  21,870  in Rheinmetall AG on October 11, 2024 and sell it today you would earn a total of  42,770  from holding Rheinmetall AG or generate 195.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Rheinmetall AG  vs.  SPECTRAL MEDICAL

Rheinmetall AG

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Rheinmetall exhibited solid returns over the last few months and may actually be approaching a breakup point.

SPECTRAL MEDICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPECTRAL MEDICAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPECTRAL MEDICAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rheinmetall and SPECTRAL MEDICAL

The main advantage of trading using opposite Rheinmetall and SPECTRAL MEDICAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rheinmetall position performs unexpectedly, SPECTRAL MEDICAL can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SPECTRAL MEDICAL will offset losses from the drop in SPECTRAL MEDICAL's long position.

The idea behind Rheinmetall AG and SPECTRAL MEDICAL pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.